Is China's Appetite For Oil On The Wane

China’s appetite for crude oil may be levelling off sooner than anticipated, a development that could fundamentally reshape global energy markets and economies. For decades, the country’s rapid industrialisation has been fuelled by a growing reliance on imported oil. But a combination of economic headwinds, structural shifts, and the rise of alternative energy sources is altering this trajectory. If the trend continues, it could mark a pivotal moment not just for China but for the global oil industry.

A Decades-Long Reliance on Imports

Oil imports have been the backbone of China’s economic ascent. In 2022, 72% of the country’s crude oil supply came from abroad, according to the International Energy Agency (IEA). Saudi Arabia, the world’s largest oil exporter, has been a key supplier, with its exports to China reaching $56 billion that year—a figure three times higher than when Amin Nasser took charge of Saudi Aramco a decade ago.

This reliance on oil supported the development of the world’s largest car industry, vast rail and air travel networks, and urbanisation on an unprecedented scale. Over the past three decades, China has accounted for half of all global growth in oil demand. However, recent data suggests that China’s thirst for crude may be reaching its peak sooner than expected, sending ripples through global markets.

A Slowdown in Demand

In 2024, China’s oil imports fell by nearly 2%, or 240,000 barrels per day (b/d), to just over 11 million b/d. This marked the first significant drop in two decades, aside from the pandemic-related disruptions. The decline is partly attributable to China’s ongoing property crisis, which has stalled construction projects and reduced demand for diesel to power heavy machinery. Similarly, the slowdown has impacted the petrochemical industry, which relies on oil-derived products like paint, pipes, and insulation.

Beyond these short-term factors, longer-term trends are also at play. China has seen a surge in trucks switching from diesel to liquefied natural gas (LNG), reducing demand for diesel. Most notably, the rapid adoption of electric vehicles (EVs) is reshaping the country’s energy consumption landscape.

Sales of petrol and diesel peaked in 2023, and forecasts suggest they will decline by 25-40% over the next decade. This shift has already prompted Sinopec, China’s largest oil refiner, to revise its timeline for peak oil consumption, now predicting it will arrive in 2027—earlier than its previous estimate of 2026-2030.

Global Oil Demand at a Crossroads

If China’s oil consumption is indeed plateauing, the implications could be monumental. For years, the IEA has predicted that global oil demand will peak before 2030. China’s slowdown could accelerate this timeline, providing hope for achieving global net-zero carbon emission targets by 2050.

Yet such a shift would have profound economic repercussions. The $500 billion spent annually by oil companies on exploration and production could soon exceed the actual demand. “The jury is out on whether the demand will be there to absorb it or not,” says Martijn Rats, an analyst at Morgan Stanley.

Market Volatility

In 2024, concerns over China’s weakening demand contributed to a year of subdued oil prices. Brent crude closed the year at just over $74 per barrel, barely lower than where it began, despite significant geopolitical tensions. These included the war in Ukraine, a shutdown of Libyan oil production, and attacks on oil tankers in the Red Sea.

Analysts warn that if Chinese imports continue to slow, the oil market could enter a fundamentally new era. “If you truly have very little oil demand growth, then that is a different oil market in the future than it has been in the past,” says Rats.

Divided Opinions

Despite the signs, not all oil producers are ready to declare peak oil for China. Meg O’Neill, CEO of Woodside, Australia’s largest oil and gas company, points out that China’s per capita energy consumption remains far below Western levels. “China still aspires to grow its economy and lift the standard of living, and often that has a direct correlation to energy consumption,” she argues.

OPEC, too, remains optimistic, projecting that China’s oil demand will grow by 2.5 million b/d between 2023 and 2050. Similarly, Saudi Aramco’s Amin Nasser has dismissed concerns over a slowdown, highlighting the ongoing demand for oil-derived materials in renewable energy infrastructure.

“For every electric vehicle, you need 200-230 kilograms of plastic. Even in solar panels, 10% comes from fibre and similar materials. For the transition to happen, you need more oil,” Nasser explained at a recent conference.

Petrochemicals to the Rescue?

China’s petrochemical industry is one area where oil demand remains strong. The country has invested heavily in becoming self-sufficient in producing plastics, fibres, and other oil-derived materials that underpin its manufacturing economy. Petrochemical production has become the dominant driver of China’s oil consumption growth since 2019.

However, this growth is unlikely to offset the decline in demand from road transport. By 2030, the IEA estimates that three-quarters of new cars sold in China will be electric. Under its current policy scenarios, the agency predicts that China’s oil consumption will fall from 16-17 million b/d today to around 12 million b/d by 2050.

A New Role for State-Owned Refineries?

The shift towards EVs raises questions about the future of China’s vast state-owned refining industry. Victor Gao, chair of the China Energy Security Institute, suggests that these refineries may pivot to producing refined products for export rather than domestic use. This could stabilise China’s crude oil imports, even as domestic consumption falls.

China’s deepening ties with Russia may also influence its energy strategy. Since Western sanctions were imposed on Russia following its invasion of Ukraine, China has become a key buyer of discounted Russian oil and gas.

The Global Shift

If China’s oil demand peaks, attention will shift to other emerging markets. India, for instance, is expected to see significant growth, with OPEC forecasting an additional 1.5 million b/d of demand by 2029. However, India’s growth is unlikely to match China’s past trajectory. Other regions, including Southeast Asia, Africa, and the Middle East, are also seeing incremental increases, but these remain small in comparison.

Analysts agree that no single market can replicate the scale of China’s oil-driven growth. “There was something quite oil-intensive about the growth China has pursued over the last 30 years,” says Rats.

Preparing for the Future

Whether China has reached peak oil or not, the long-term trend is clear: global oil demand is slowing. For oil-producing nations and companies, this represents a seismic shift. “It may still be profitable to extract and sell oil, but the overall reduction in income will have massive implications,” says the IEA’s Healy.

The oil industry and exporting nations must prepare for this new reality. A world in which China’s growth no longer drives global demand will require new strategies, and the transition could redefine the future of energy markets.